Rabobank Vaults to Top Ranks in U.S. Farm Loans
When Rabobank Nederland cracked the American market in 1981, the giant Dutch bank decided two things: It would service medium-size companies in the farm and food sector and settle for modest returns over the long term.
Middle-market companies need banks because they can't directly tap the capital markets, Rabobank reasoned. Further, it bet that because many American banks shuffled in and out of agribusiness lending, depending on economic cycles, a bank with staying power would be welcome.
Correct on both counts. In fact, the strategy has meant explosive growth for $100 billion-asset Rabobank and a place alongside top agricultural lenders Wells Fargo & Co. and BankAmerica, both based in San Francisco.
Patient About Return
"We're satisfied with a gradual return on equity," said Hugo Steensma, Rabobank's general manager for North American operations. "For most American managers, it has to be this quarter or this year. We look at things in terms of four or five years."
These days, partly because the agribusiness market is tight, patience is a virtue. In recent years, other foreign banks have launched efforts to increase their U.S. business in the sector, including Credit Agricole, France's largest bank. And farm lending - one part of the agribusiness market - is off more than 35% since 1987, according to the Department of Agriculture.
"There's an overabundance of credit in the commercial banking industry for agricultural loans," said Kelly Holthus, past president of the American Bankers Association and chief executive officer of First National Bank of York, Neb.
But Mr. Steensma believes that Rabobank, by focusing on advising and lending to agribusiness companies with annual sales between $50 million and $500 million, can continue to expand its U.S. business. Such middle-market companies are not rated by any of the three major rating agencies, and therefore cannot directly tap the capital markets.
The rating agencies are Moody's Investors Service and Standard & Poor's Corp., both based in New York, and London's IBCA Ltd.
The Highest Ranking
Rabobank is one of just six banks in the world to receive a triple-A rating from the agencies. That means the bank can raise funds more cheaply than lower-rated companies.
The other five triple-A rated companies are Credit Suisse, Swiss Bank Corp., Union Bank of Switzerland, Germany's Deutsche Bank, and Britain's Barclays Bank.
Mr. Steensma said Rabobank, formed in 1972 with the merger of two Dutch cooperative farm bank groups, is looking to throttle down some from its rapid expansion here in recent years. "We need to catch our breath," he said.
Fast Growth in Assets
Rabobank has set a brisk pace. On June 30, 1990, the bank's U.S. assets totaled $1.9 billion, more than double a figure of $930.6 million in 1986. The figures exclude assets booked in the Cayman Islands.
Commercial and industrial loans as of last June totaled $866.7 million, up a whopping 627.1% since 1986. Some 80% of the bank's U.S. loans are in the agribusiness sector, Mr. Steensma said.
But slower growth does not mean Rabobank is likely to be caught napping. Mr. Steensma said the bank is aiming to roll out a clutch of new products and services for its American clients, which include farmers, farm-equipment manufacturers, food processors, canners, shippers, distributors, and exporters.
For example, he said, Rabobank may take a look at the leasing business and move to roll out interest-rate hedging instruments. Such a product would protect the bank's clients against interest rate fluctuations.
Aware that many foreign bankers in the U.S. are kept on a short leash by their home offices, Mr. Steensma cited the relative "leeway" given Rabobank's North American operations as another element in the bank's success here.
But even the best businesses face constant pressures to produce. "If you do well," he added wryly, "you're more independent than if you don't."
